Weekly Crude Oil Inventories Report

Fifth Straight Losing Week For Oil As Production Hits New Weekly High

Crude oil extended its decline into a fifth consecutive week this week as the US crude oil inventories were seen rising once again.

New Weekly High In Production

The latest data from the Energy Information Administration showed that crude stocks in the US rose over the week ending Nov 2nd by 5.8 million barrels. This figure is more than double the 2.4 million barrel increase that the market was looking for. The data also showed that gasoline stocks increased by 1.9 million barrels over the same period, far outstripping the forecast for a 2.3 million barrel drawdown and well above the -3.9 million figure of the previous week.

Distillate stockpiles, including diesel and heating oil, were down by 3.5 million barrels over the week, lower than the expected 2.6 million barrel drop though not as low as the 4.1 million barrel drawdown seen over the prior week.

In terms of production, we saw some very interesting figures indeed. Crude oil production hit 11.6 million barrels per day, marking a new weekly record, while gasoline production averaged 9.7 million barrels per day and distillate production 5 million barrels per day.

Iran Sanctions Fail To Support Price

The data has put visible pressure on oil this week which has continued to trade lower despite the activation of fresh US sanctions on Iran. The sanctions are expected to wipe around 1 million barrels per day off the market and, prior to the last month, had been propping prices up.

However, with Russia, Saudia Arabia, and the US each having increased production to combined record levels, it seems that the increased supply is more than capable of absorbing this loss and consequently we are seeing prices continue their downward trajectory.

In its latest Short-Term Energy Outlook, the EIA did little to inspire bulls’ hopes as it forecast Brent crude to average around $72 per barrel in 2019 showing WTI trading at a $7 per barrel discount to the global benchmark.

EIA Forecasting A Supply Glut

The EIA said that increasing shale production in the US, which is now on course to hit 12 million barrels per day far ahead of earlier forecasts, is boosting the group’s view that the world market could once again quickly swing into oversupply, the same conditions which saw oil markets plummet in 2014.

Oil Shrugs Off Trade Deal Optimism

Indeed, this latest sell-off comes amidst increased hopes of a US / China trade deal. A potential escalation of the trade standoff between the two economic superpowers was part of the reason we saw oil selling off from its 2018 highs just over a month ago. However, with president Trump now signaling his readiness and willingness to strike a deal with China, other risk markets have been rallying. For now, it seems that the supply story in oil is the main issue driving markets and to that end, we are likely to see further prices drops as global demand certainly looks to be out of sync with the level of production we’ve seen recently.

Technical Perspective

The bearish RSI divergence we highlighted a few weeks ago in Oil has now seen price reversing lower from its 2018 highs all the way down to the bottom of the bullish channel which price is currently challenging. This is a big area for oil as we also have the 50% retracement from 2017 lows sitting just below at 59.57. If price can break down below this area, we are likely to see a much deeper run as momentum players join the market. To the topside, any retest of the broken lows around 63.72.

With over 6 years’ experience analysing currency markets, James is now a well-known industry analyst focusing on price action trading and fundamental drivers. Beginning as a private retail trader, James developed a strong interest in understanding the fundamental aspect of the market before pursuing technical trading capabilities which he now uses to identify opportunities over a short-term horizon. Alongside his market experience, James is also IMC certified having achieved the qualification to help further his understanding not only of the markets but the industry as a whole.

James has a strong interest in both fundamentals and technicals and uses both forms of analysis in generating and executing trade ideas, with trades generally lasting from a few hours to a few days.

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